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- Subject
- Taxationeconomics-mcqs › taxation
- Published
- 28 May 2019
- Last updated
- 28 May 2026
Explanation
When a tax is imposed starting from a low rate and then gradually raised, tax revenue tends to increase at first because the tax base is not yet heavily impacted. However, after a certain point, further tax increases discourage consumption or production, causing the total revenue to decline. This pattern is often illustrated by the Laffer curve, where revenue rises and then falls as tax rates grow.
More Taxation MCQs
Practice related questions from the same subject.
- 1.What defines a progressive tax system?
- 2.Which tax rate is most relevant when evaluating the vertical equity of a taxation system?
- 3.What defines an efficient tax system?
- 4.Sana values a pair of blue jeans at Rs400. When the price is Rs350, she purchases the jeans and gains a consumer surplus of Rs50. If a tax causes the price to increase to Rs450, Sana decides not to buy the jeans. What concept does this scenario illustrate?
- 5.What is the result when a tax changes the behavior of buyers and sellers, leading to a reduction in the quantity of goods produced and exchanged compared to a no-tax scenario?
- 6.What happens to the deadweight loss when the tax imposed on a product is doubled?
- 7.Given that the supply of undeveloped land is fairly inelastic, what outcome would result from imposing a tax on such land?
- 8.How does imposing a tax on petrol typically affect deadweight loss over different time frames?
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